The Left Must Get Ready to Seize the Next Financial Crisis? (Pt 2/2)

July 22, 2018

Instead of bailing out banks when the next global financial crisis hits, we need to be prepared to nationalize them and create a public banking sector, which will not only be a way out of the crisis, but will also help prevent future crises, says Thomas Hanna of the Democracy Collaborative

Instead of bailing out banks when the next global financial crisis hits, we need to be prepared to nationalize them and create a public banking sector, which will not only be a way out of the crisis, but will also help prevent future crises, says Thomas Hanna of the Democracy Collaborative

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Story Transcript

SHARMINI PERIES:It’s The Real News Network, and welcome back to our discussion of the Next Systems Project report “The Crisis Next Time: Planning for public ownership as an alternative to corporate bank bailouts.” And joining me now in our studio here in Baltimore is the author of the report, Thomas Hanna. Thanks again for joining us.

THOMAS HANNA:Thank you for having me.

SHARMINI PERIES:All right, Thomas. So let’s first, before we get into the public banking proposal, take a look at other public banks that may exist that we can draw on as an example, which is your solution to the next crisis.

THOMAS HANNA:Yes. So, many people in the United States are aware now that there is a large and robust public banking movement, especially since the financial crisis. This is occurring at the state level, and especially at the city level. Los Angeles recently has put up a public bank for a referendum to decide whether or not they want a city bank in Los Angeles. North Dakota. Many people look at the Bank of North Dakota, which is one of the longest-standing and only public banks in the United States. It was founded in the early 20th century by the Nonpartisan League, which was an offshoot of the Socialist Party. It withstood an early onslaught from Wall Street opponents who wanted to get rid of it. But it has become institutionalized in that state’s banking ecosystem. So during the financial crisis in 2008 it was able to help ensure that North Dakota weather the crisis better than almost any other state. It had a very low rate of foreclosures. Very few bank closures, almost none, I think. It helps provide students with student loans. It provides community banks, it backstops community banks so that they have a thriving local banking system in North Dakota.

So there’s a movement, there’s a bottom-up movement for public banking in the United States which we very much support, and we’re very much excited about. There also needs to be a top-down solution, as well, to solve the issue of the large Wall Street banks. So when there’s another financial crisis, what do we do with the Wall Street banks?

So the United States also has experience with public ownership or nationalization in the context of financial crises. Several times in the past decades, when a large bank has gone down, the United States government has stepped in and nationalized or quasi-nationalized that bank; most recently during the financial crisis, where we bailed out a lot of banks, but we also took ownership stakes in several very, very large financial institutions. And the issue that happened is that the United States government was so ideologically opposed to calling this a nationalization, or taking these into public ownership, that they broke every rule in the book in terms of how to do this that has been taught and learned internationally. So these were messy. There was very unclear legal authority. The U.S. government gave up its voting rights and gave up control over these institutions, and they tried to return them as quick as possible to private ownership no matter what. No matter what the cost.

SHARMINI PERIES:And that has a lot to do with who was advising Obama at the time.

THOMAS HANNA:Yeah, exactly. We talked in part one about the financial power of the large Wall Street banks. What we didn’t really get into is that the Obama administration, and the Trump administration, and every administration going back decades has had a lot of their senior advisers who are drawn from Wall Street, who are drawn from these very large banks, to the point where the U.S. government is jokingly referred to as Government Sachs at this point, given the high number of people in high levels of the U.S. government drawn from that bank.

SHARMINI PERIES:As you said, there are lots of examples out there that they could have drawn from, and use the moment to at least partially own some of these banks so that they could have greater control as to how they worked within the financial sector. But that didn’t happen. But there are international examples of public banking that one could have also taken into consideration. But they didn’t. But tell us some examples of those.

THOMAS HANNA:Yeah, exactly. So around the world, public banking is very common. In the United States and U.K. it’s not as common, but in places like Germany and Japan, and in places in South America, you have a long and rich tradition of public banking. In Germany there are around 400 or so public municipal savings banks called the Sparkassen. In the European Union as a whole there’s around 200 or so public or quasi-public banks that have around a fifth of all assets in the European Union- of all banking assets within the European Union. The Japan Post Bank is a very, very large public bank. It was partially privatized, but is still a majority publicly-owned bank that is one of that nation’s largest employers, and is one of the world’s largest public banks. South America, as I mentioned, has several large public banks.

And these are relatively successful. These are relatively uncontroversial, and they’ve been around for a long time. As I said, there’s a rich tradition. These are not new, flash in the pan kind of experiments. These are, these have very long roots within these particular countries. And the United States, as I mentioned, has, again, has one bank, the Bank of North Dakota, which does have this very long tradition and is uncontroversial, and has a lot of benefit. So there’s a lot to be learned both from international examples and from the United States example with the Bank of North Dakota.

SHARMINI PERIES:Now, what’s so exciting about your proposal is you present it before the crises, and you talk about getting prepared for the next crises. So what needs to happen in terms of preparedness?

THOMAS HANNA:Exactly. So the financial crisis represents, or the next financial crisis, will represent an opportunity to do things differently. If we don’t come up with a plan, if we do not prepare for the next financial crisis, it’s going to be a rerun of 2008. We will be giving large amounts of public taxpayer money to these large financial institutions with very few strings attached. They will sit there, they will wait out the crisis. They know they have nothing to fear from the government. Then they will go back to doing exactly the same thing and the structure of the industry will remain exactly the same, and all of the ill effects of the financial crisis will be borne by the people, just like in 2008. High unemployment, foreclosure, so on and so forth, while the big banks and their investors make billions and billions of dollars.

So what we need to think about now in advance of the next financial crisis is how would we like to do that differently? And what we’re proposing in this proposal is that instead of bailouts, when the banks come running to the government asking for a handout, asking to be saved from collapse, that we provide them with capital. But we take ownership stakes in those banks, with full voting rights in exchange. And this need not necessarily be temporary. You know, in the last crisis we did this. We did quasi-nationalizations. We did them very messily, and they were temporary. We’re asking for this legislation for, to start planning for what long-term public ownership might look like of financial institutions.

SHARMINI PERIES:And how receptive are legislators to this kind of proposal?

THOMAS HANNA:Yeah, so, you know, on the face of it this does not have high prospects for success in the current political atmosphere, especially with Republicans in control of most branches of government in Washington, D.C. A crisis, a financial crisis, represents an opportunity. All bets are off. All cards are on the table in a financial crisis. So we’re talking about doing some of the back work, the research, working out some of the technical details of what this proposal might look like now in advance of a crisis, even if it’s been introduced and never made it out of committee, even if it’s never even been introduced in Congress. When there is another financial crisis this could be dusted off, brought off the shelf, introduced either as legislation in advance of any rescue package or tacked onto a rescue package as an amendment.

During the last financial crisis there was an amendment, the SAFE Banking amendment, which argued for breaking up the big banks. We don’t believe breaking up the big banks would work. We believe that the political power, the political institutional power of the big banks, precludes breaking them up. And if there was a financial crisis you wouldn’t want to just break up big banks. First you have to save the big banks. Then you could break them up. So you could bring them into public ownership, then potentially they could be broken up. But public ownership would be a prerequisite for that. But the SAFE Banking amendment got 33 senators to sign onto it, which seems pretty crazy now that 33 senators in Washington would sign up to break up the biggest banks in the United States. But it did happen. So we believe that such an amendment, next time there’s a financial crisis, could be introduced and it could get some success.

Also you need to think about how the American people feel about bank bailouts, and they hate them. You have polling and studies now that show that, you know, 70-80 percent of Americans oppose future bank bailouts, even knowing what we know now about the severity of the financial crisis in 2008. Most Americans, a majority, over 50 percent believe it was not a good idea to bail out the banks during the last financial crisis. In fact, a majority during the financial crisis, they did some polling, a majority were asked that, you know, they would like the government to take ownership of banks with full voting rights rather than just handing out money in bank bailouts. So you know, the Tea Party, Occupy Wall Street, all the movements now. I believe that if there’s another financial crisis, that public support for public ownership as opposed to bank bailouts would be even greater than it was in 2008.

SHARMINI PERIES:All right, Thomas, let’s take up the issue of publicly-owned institutions. And I guess since the Reagan era they have become less and less popular. People think public institutions are mismanaged, they’re inefficient. And so a climate of privatization has come up. So in this climate, how do you respond to the need for public management and public utilities and public banking?

THOMAS HANNA:Yeah, so, privatization that was occurring in the 1980s and 1990s has, in many places in the world and in the United States started to be reversed. You’re seeing a process of municipalization as people have experienced some of the ill effects of privatization. So what we would say, and what I believe, is that you need an internal process of democratization of public ownership in addition to increasing public ownership in certain sectors. So the extent to which people can be involved, they can feel like they have an ownership stake, feel like they are participating in the governance and management of these enterprises, will make them more popular, will make them more robust and less resistant to privatization.

SHARMINI PERIES:And how do you do that?

THOMAS HANNA:Well, I believe that there are certain mechanisms, internal mechanisms. We want to increase transparency. We want to increase accountability. You need to go beyond simply public meetings and open records. We need to give people a chance to actively participate in these enterprises.

One way of doing that is through multi-stakeholder governance boards so people, other organizations, various levels of government can be involved in directly running these organizations. You know, popular consultive planning processes. We’ve seen around this country and around the world an increase in participatory budgeting, which is essentially allowing people democratically to come together to decide how government resources are spent and what they want them spent on. There’s no reason why public banks or any other public enterprise cannot also engage in some sort of participatory planning process to guide the long-term objectives of public ownership. That’s not to say that the government or the people will have a say in everyday running of an industry, every single decision a bank or any other company might make. But it’s about setting the longterm objectives and priorities of public ownership so that then there can be autonomy to allow the enterprise to go and do that as efficiently and effectively as it can.

SHARMINI PERIES:And so there is a sense that this belongs to us.

THOMAS HANNA:Exactly. Yeah, the more that people can feel like this is theirs, they own it, and they have a say in how it runs, the more people are going to want to preserve it. And I think you see that a lot with municipal enterprise around the country. You know, in many places, especially with water and with electric utilities, people don’t want those things privatized. And they have mobilized. There have been campaigns for defending these industries and these enterprises against privatization. There have also been campaigns like in Boulder, Colorado to remunicipalize electric systems that have been privatized or are being run by large corporations because they are very unsatisfied with how that is working.

And the benefit of public ownership is that it gives you freedom of choice and freedom of decision making. So private corporations, for-profit corporations, are very constrained in what they can or cannot do. They are beholden to shareholder value. They are beholden to, you know, the pressures of markets and competition-.

SHARMINI PERIES:And profits.

THOMAS HANNA:And profits. Whereas public, publicly-owned companies, you can decide what you would like them to do. So in the banking sector, if you were to take public ownership of the large banks, you could decide what you would want those banks to do. You could say one of them could be for green infrastructure. One of them could be to help convert businesses to worker or employee ownership. One of them could be to support municipal governments and buy municipal bonds, and to support municipal infrastructure networks. You have complete freedom of choice to decide how they are set up, what their objectives are, and what the long-term goals of public ownership should be.

SHARMINI PERIES:All right, Thomas. I thank you so much, first for doing this incredible report and coming up with such a proposal. And also just a discussion leads to more preparedness, and people know what they have to do in order to make sure that they seize the moment in the next crises. And I wish you all the best getting the word out there.

THOMAS HANNA:Thank you so much for having me.

SHARMINI PERIES:And thank you for joining us here on The Real News Network.

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